Article: Property Investment

Council Doors Closed To  Public Say with Frank NewmanCouncil Doors Closed To Public Say with Frank Newman

This year the Whangarei District Council (WDC) took the unusual step of not consulting the public on its Annual Plan. I can’t recall of any time in the past, when councillors have not consulted, as it effectively denies the public an opportunity to have their say about how the council is run, and what it should or should not spend its time and our money on. And it’s not like the public are not interested in the annual plan process and don’t want to say anything, as the process usually attracts a good number of submitters. While many may have an all-too-familiar sound to them, there are usually some very worthy submissions that do influence councillors.
 
The Council’s reasoning for not hearing from the public is that there were no significant differences between year three of the Long Term Plan 2015-25 and the Annual Plan 2017-18 which Council has adopted. I thought it worth putting that to the test by comparing the two documents.
 
Conveniently the Council defines what is meant by significant on page 189 of the Long Term Plan. It says a net operating expenditure is significant if it varies by greater than 2.5% of total rates, and capital expenditure is significant if the variance is greater than 10% of total rates.
 
So the question is, are there significant differences between the Annual Plan 2017-18 and the Long Term Plan? The answer is, yes, contrary to the claims of the Council. A few of the most significant differences are as follows:
 
· Annual staffing costs are $2,755,000 more than planned. That’s more than 2.5%
of operating expenditure and a significant increase in anyone’s language. Clearly
the council believes there is a need to increase staff numbers, but it is very short
on explaining why. There will no doubt be some increase due to more building
activity, but does that account for the majority of the staff increase? Or is it
because council is increasing staff in its planning and rule making department?
 
· In the current year there is $13m more to be spent on capital projects than was
planned. Half of this is projects deferred from years 1 and 2, but the other half is
unbudgeted spending; the major new items being wastewater, street lighting and
cycle ways.  Surely the public should have been given an opportunity to at least
have a say on whether they agree with those items having priority over the many
other worthy projects?
 
· A very significant variance is a $68.1 million reduction in the council’s assets,
which is about 4% of total assets. This is explained as being, “…due to carrying
forward more capital spending projects than anticipated in years one and two,
them and a major undertaking to tidy up the coding and treatment of many of our
assets”. Putting the coding issue aside, it is significant that the councils debt
position is better than expected because some $68 million has not been spent on
infrastructure and community assets. What is remarkable about this, is that one
would expect total liabilities to be down by about the same amount, not the $10.2
million shown in the accounts.
 
· There is also a significant and unexpected loss on derivative contracts which were
“out of the money” (a liability) to the value of $12m, $9m higher than forecasted.
That too is material and raises questions about their use of derivatives to reduce
debt servicing costs and whether it is putting ratepayers at risk.
 
When taking a big picture view of the councils finances, the bottom line is that there are going to be some issues for councillors to confront in the future. At present those issues are not obvious until one looks behind the figures to see what’s driving them. Our elected representatives have been quick to point out that the councils debt is $30m better than had been projected in the Long Term Plan. What they don’t say is that has been achieved by not doing the $68 million of capital work that had been promised.
 
That points to a significant increase in debt within the next year or two once the backlog of capital work is completed. The alternative is to continue to defer promised capital works throughout the remaining seven years of the 10 year plan.
 
These are all important matters that are worth raising with councillors - if only they would provide the public with an opportunity to do so!

Frank Newman is the principal of Newman Property Consultancy. He is the author of numerous books on investment matters. For questions or comment about this article contact .(JavaScript must be enabled to view this email address)


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